What is Cash Accounting
Definition: Cash accounting is the methodology under which transactions are recorded when they actually happen. For example, income will be recorded when the company receives cash and expenses are recorded when they are actually paid out and not when the bill is raised.
Description: There are two basic type of accounting methodologies ¨C one is cash accounting and the other is accrual accounting. Both systems have their own benefits. Cash accounting is beneficial for small companies or organisations and for complex organisational structures accrual accounting is better.
Cash accounting is a system where revenues as well as expenses are realised when they are received or paid out in case of an expense. It is fairly easy to use methodology. LetĄ¯s understand it with the help of an example.
If your company ABC receives an order to supply 10 computers on October 10, but you deliver the goods in November, the sale will be recorded in the month of November only and not in the month of October.
Your firm ABC receives cash of Rs 1,00,000 for the sale of 10 computers from company XYZ on November 10. The accountant will record the transaction of a sale on November 10 only, and not on October 10.
Companies record expenses when they are actually paid out. LetĄ¯s understand the concept with the help of an example. If your company hires a contractor on November 1 and a bill is raised on that day, but the actual money was paid out on November 15.
Under cash accounting, November 15 would be the date when the transaction will be recorded and not November 1st.
This method is usually used by sole proprietors who have small, cash-based business or are involved in providing service to customers.
Description: There are two basic type of accounting methodologies ¨C one is cash accounting and the other is accrual accounting. Both systems have their own benefits. Cash accounting is beneficial for small companies or organisations and for complex organisational structures accrual accounting is better.
Cash accounting is a system where revenues as well as expenses are realised when they are received or paid out in case of an expense. It is fairly easy to use methodology. LetĄ¯s understand it with the help of an example.
If your company ABC receives an order to supply 10 computers on October 10, but you deliver the goods in November, the sale will be recorded in the month of November only and not in the month of October.
Your firm ABC receives cash of Rs 1,00,000 for the sale of 10 computers from company XYZ on November 10. The accountant will record the transaction of a sale on November 10 only, and not on October 10.
Companies record expenses when they are actually paid out. LetĄ¯s understand the concept with the help of an example. If your company hires a contractor on November 1 and a bill is raised on that day, but the actual money was paid out on November 15.
Under cash accounting, November 15 would be the date when the transaction will be recorded and not November 1st.
This method is usually used by sole proprietors who have small, cash-based business or are involved in providing service to customers.